Block Insurance and Rebuild Cost Assessments: Why They Matter

Buildings insurance is one of the most important responsibilities for any Freeholder, Resident Management Company (RMC) or Right to Manage (RTM) Company.

Whilst many directors focus on obtaining competitive insurance premiums, ensuring the building is insured for the correct rebuild value is equally important.

Getting this wrong can leave leaseholders and property owners exposed to significant financial risk.

What Is Block Insurance?

Block insurance (sometimes referred to as block of flats insurance) provides cover for the entire building rather than individual apartments.

A typical policy may include:

• Buildings insurance
• Public liability insurance
• Property owners' liability
• Employers' liability (where applicable)
• Alternative accommodation costs
• Loss of rent cover
• Legal expenses
• Terrorism cover (where required)

The policy is designed to protect the structure of the building and the interests of all leaseholders, freeholders and residents.

What Is a Rebuild Cost Assessment?

A rebuild cost assessment determines how much it would cost to completely rebuild a property if it were destroyed.

Importantly, this is not the same as the property's market value.

A rebuild cost assessment considers:

• Demolition and site clearance costs
• Construction costs
• Professional fees
• Materials and labour
• Building design and construction type
• Location of the property

The purpose is to ensure the building is insured for the amount required to fully reconstruct it following a major loss.

Why Is a Rebuild Cost Assessment Important?

Avoiding Underinsurance

If the building is insured for less than its true rebuild value, insurers may reduce claim payments under the policy's average clause.

This means leaseholders and owners could face significant unexpected costs following a major claim.

Avoiding Overinsurance

Overinsuring a property can result in unnecessarily high insurance premiums without providing any additional benefit.

Maintaining Compliance

Many leases require the building to be insured for its full reinstatement value, making accurate insurance valuations an important part of a director's responsibilities.

How Often Should Rebuild Costs Be Reviewed?

As a general guide, rebuild cost assessments should be reviewed:

• Every 3 to 5 years
• Following significant refurbishment works
• Following extensions or alterations
• Where there have been substantial increases in construction costs

Regular reviews help ensure the building remains adequately insured.

What Is an Insurance Uplift?

Many insurance policies include an inflation provision, often referred to as an uplift.

The uplift is a percentage added to the declared rebuild value to help account for increases in construction costs during the policy period.

This is particularly important during periods of rising labour and material costs.

Rebuild Cost vs Insurance Uplift

These terms are often confused but serve different purposes.

Rebuild Cost Assessment

A professional assessment of the actual cost to reconstruct the building.

Insurance Uplift

An additional percentage applied by the insurer to provide a buffer against inflation and rising construction costs.

An uplift should not be viewed as a replacement for obtaining a professional rebuild cost assessment.

Common Mistakes Made by Directors

Some of the most common issues we encounter include:

• Relying on outdated valuations
• Assuming market value equals rebuild value
• Failing to review insurance following major works
• Choosing the cheapest policy without considering cover levels
• Assuming an inflation uplift removes the need for a rebuild cost assessment

These mistakes can lead to significant problems when making a claim.

How Archery Estates Can Help

At Archery Estates, we regularly assist Freeholders, RTM Companies and Resident Management Companies with insurance reviews and policy renewals.

We can help with:

• Reviewing insurance arrangements
• Obtaining rebuild cost assessments
• Tendering insurance policies
• Claims management
• Insurance compliance reviews
• Leaseholder and director guidance

Our aim is to ensure developments are adequately protected whilst obtaining value for money for leaseholders.

Need Advice?

If you are unsure whether your building is adequately insured or when the rebuild cost was last reviewed, contact Archery Estates for guidance and support.